Even among Ottawa insiders, few would be aware that two officials running a tiny agency Flaherty set up to try to create a national securities regulator beat them all. Douglas Hyndman, chairman and chief executive officer of the Canadian Securities Transition Office (CSTO), makes $534,043, and Lawrence Ritchie, the CSTOâ€™s executive vice-president and senior policy adviser, $537,469. Their salaries are public because Hyndman is on long-term loan to the feds from the British Columbia Securities Commission, while Ritchie is similarly seconded from the Ontario Securities Commission, and both B.C. and Ontario publish â€œsunshine listsâ€ of salaries over $100,000. They are still technically on the provincial payrollsâ€”even though theyâ€™ve been working for Flaherty since 2009â€”with Ottawa compensating their home provinces. (The Harper governmentâ€™s refusal to support Alberta MP Brent Rathgeberâ€™s private memberâ€™s bill to publicly disclose federal salaries over $188,000 led to Rathgeber quitting the Tory caucus last spring; the government wanted to reveal only a handful of salaries over $444,661.)
At a glance, their pay seems out of whack by federal standards. After all, Hyndman and Ritchie together oversee only about 20 employees. Poloz, by comparison, commands about 1,240 at the central bank. But Flaherty has staked more on his high-priced ringers than the size of their shop might indicate. In an email exchange with Macleanâ€™s, Hyndman said his â€œrelatively small staffâ€ belies the complexity and importance of what the CSTO is trying to accomplish. â€œWe are using the expertise of a core group drawn from provincial securities regulators, plus some additional staff, to develop critical improvements to Canadaâ€™s system of capital markets regulation,â€ he said. â€œWe also need to maintain the flexibility to move forward on either federal legislation or a co-operative scheme with the provinces.â€
That last part about being ready to pursue either of two very different policy options is key. Flaherty set up the CSTO back in 2009 to bring about his goal of establishing a common Canadian securities regulator, replacing a hodge-podge of provincial stock market commissions. But some provinces challenged his plan in court. In late 2011, the Supreme Court of Canada ruled that Ottawa was overstepping its jurisdiction. Despite that severe setback, Flaherty kept trying to coax provinces to come onside voluntarilyâ€”thatâ€™s the â€œco-operative schemeâ€ Hyndman mentions. But if those overtures to the provinces fail, the court ruling left the federal government room to regulate in limited areas on its ownâ€”thatâ€™s Hyndmanâ€™s â€œmove forward with federal legislationâ€ option.
In fact, indications from federal officials suggest they are not optimistic that enough provinces will sign on to salvage Flahertyâ€™s original grand plan. For instance, Hyndman said the CSTOâ€™s â€œprimary focus right now is developing proposed legislation and implementation plans that will be needed if no agreement is reached with provinces on a common regulator.â€ But exactly what parts of the financial marketplace the federal government will set out to regulate on its own has not yet been announced. Itâ€™s the subject of considerable speculation among private-sector experts. Flahertyâ€™s office says the aim would be â€œpreventing and responding to systemic risks, such as those posed by over-the-counter derivatives.â€
Figuring out ways to regulate trading by sophisticated investors in derivatives, which go by exotic names such as â€œcurrency forwardsâ€ and â€œcredit default swaps,â€ is a hot topic in international policy circles, largely because failures on this murky side of the market are blamed for the 2008 global credit meltdown and the recession that followed. Hyndman even suggests that losing the Supreme Court case focused the federal governmentâ€™s attention â€œprecisely where Canada needs to do a better job to get regulation right.â€
Whatever slice of the market Flaherty decides to tackle, settling on that approach shouldnâ€™t take much longer. â€œOur planning horizon is in months, not years,â€ Hyndman said. On whether he and Ritchie will go back then to their provincial jobs, or stay on to run an agency set up to bring new regulations into force, he said only, â€œWe have not sought, nor been offered, permanent federal positions.â€
Before you get all that upset, that is probably a deal for two guys of that talent who would make much more in the private sector. Â That being said, it probably won’t get enough provinces to sign on and in the end, will be a lot of money down the drain.